The Hutch Report

Your financial illiteracy is good for banks

By | Education, Finance

One of the fallacies of education is that if somebody has a list of impressive academic achievements, they are highly knowledgeable and intelligent. Yet knowledge does not equate to intelligence. Knowledge is the collection of skills and information a person has acquired through education and experience. Intelligence is the ability to apply that knowledge. Equally, just because someone lacks knowledge of a particular subject doesn’t mean they can’t apply their intelligence to help solve problems.

The chasm that exists between knowledge and intelligence is no clearer than in the field of personal finance, as Americans face a record $13 trillion in debt. Although the current Covid pandemic did take many by surprise, a recent article in Time magazine highlights: 

“While some face new challenges resulting from loss of income or uncertainty for the future, for many the current economic crisis only exacerbates already present stressors related to monthly bill payments, consumer debt balances, lack of emergency savings, or even just putting food on the table.”

Basic math skills is a requirement for all public schooling, yet the ability to use standard addition, subtraction, multiplication and division to solve problems seems to be lost when it comes to dealing with money. Colleges may make students take biology, history, and other classes as general education requirements, but learning anything about saving, investing, and how financial markets work is purely an option.

In a previous article (Are you educated?) we highlighted the current weaknesses in the education system and the need to rethink methods and curruculum that may be more suited and effective in today’s fast changing world. It maybe important to now ask, “Should financial literacy be an educational requirement?”

You would think the answer would be a resounding “yes” but this is not the case. There are a large number of businesses that thrive on keeping the population financially illiterate. In their book: Simple: Conquering the Crisis of Complexity, Irene Etzkorn and Alan Siegel point out that “banks, credit card companies, insurers and other types of businesses find ways to make money from the fine print nobody can read or understand,” and that “lawyers have inundated us with mind-numbing disclaimers, disclosures, terms, instructions, amendments and amendments to amendments” to “avoid lawsuits or other potential problems.”

Every time a bank’s client uses their debit card, write a check or withdraw funds, the balance in their bank account goes down. According to the Center for Responsible Lending, “Banks collected more than $11.68 billion in 2019 through abusive overdraft practices that drain consumers’ checking accounts.” 

Not understanding personal finance means that most clients don’t understand the fees they are charged, how credit card interest charges accumulate, how to construct or stick to a budget, and so many more facets of basic money management. Some are lacking in knowledge, some in intelligence and those that lack in both are a windfall for financial institutions.  In finance, as in healthcare, when people don’t know what they are paying, service providers have no real incentive to lower costs.

The financial industry has made it a practice to make sure that investing is very complicated. They have a tendency and flair for developing the most complex names possible (even the guys selling these products are not entirely sure of what they mean), examples such as collateralised mortgage obligations, leveraged index funds, credit default swaps, or synthetic CDOs. As Mark Hanna put it in The Wolf of Wall Street, “The name of the game: moving the money from your client’s pocket to your pocket.”

Boris Vallée, a PhD in Finance from HEC Paris, points out that, “The fact that banks use persuasion techniques, by giving products magical names such as ‘Unicorn’ or ‘Elixir’ in an environment where we should be thinking rationally is illustrative of their targeted strategy.”

Banks are a business and expect to make profits but there is a good argument to show that they have taken this way too far. They don’t call them “predatory banks” for nothing. 

The growing wealth inequality gap and the increasing level of personal debt may have some ringing the alarm bells to make some changes. 

A new report from the Council for Economic Education found that the number of states that require a high school student to take a personal finance course — either a standalone class or integrated into other coursework — in order to graduate has risen to 21.

According to a 2019 report by Montana State University researchers Carly Urban and Christiana Stoddard, financial education decreases the likelihood of holding credit card balances, and the education reduces higher-cost private loan amounts for borrowers. 

This bodes well for future generations, however, what is the solution for the current portion of the population that left school years ago, financially illiterate and mired in debt? That is not immediately clear as household debt surged in 2019, marking the biggest annual increase since just before the financial crisis, according to the New York Federal Reserve. 

The Hutch Report

Are you educated?

By | Education

Today’s general consensus seems to be that the current western education system is broken. The argument is basically that the system used to work, but now it doesn’t. 

This frustration towards the current mechanics of the system does not only come from disgruntled parents and uninterested students, it also comes from some very intellectual and successful personalities. Physicist Michio Kaku believes that today’s system of education, where exams are based on grades and memorisation, is crushing curiosity. American astrophysicist, cosmologist, and planetary scientist Neil deGrasse Tyson thinks that in order to achieve the highest grades, students will simply choose what is easy. He says that today’s education structure rewards high GPAs, in a world that rewards tenacity. Entrepreneur Elon Musk feels that the fact that curriculums are forced on students is an issue. Teachers don’t explain to students why they are being taught a certain subject. He believes that rather than just learning math, taking a problem and using math to solve it is a much more engaging prospect. The list of reasons is long and getting longer each year. To add some clarity, it may be worth first asking the question, “What does it mean to be educated?”

The latin word “educare” is the etymological root of the modern word ‘education and it means “to bring up, rear, train, raise, support”. Educare is related with “ducere,”which means, “to lead, conduct, guide”. To be educated means to be “guided” or “brought up” or “trained” by other persons. Education is the act of another person, the trainer, the educator, the guide, while the educated is the receiver of the training and guidance.

So being educated or well educated simply implies that you have been guided or trained and does not really indicate the level of knowledge someone has attained. You can be well educated but very knowledgeable. Equally, you could be extremely knowledgeable but not very well educated. Throughout history, we have seen a number of examples. The Wright Brothers never finished high school yet became knowledgeable enough about aerodynamics to invent the airplane. Steve Jobs completed only one year of college yet is now recognised as one of the pioneers of the computer revolution. Thomas Edison spent 3 months in high school yet went on to invent the light bulb, the motion picture camera, telephone, phonograph, and has over 1,000 patents to his name. 

Where was our current education system adopted from?

It is believed that our current education system was derived from the Prussian factory-style schools that caught on across the West as the spread of industrialisation created a need for compliant, literate factory workers. Industrialists led the charge to adopt universal education in the US, UK, and elsewhere in Europe. Factory owners were among the biggest champions for the Elementary Education Act 1870, which made education universally available in England. 

Times have changed. More and more factory workers are being replaced by robots. A nalysis firm Oxford Economics found the more repetitive the job, the greater the risk of its being wiped out. Industrial robots offer manufacturers greater consistency and better quality when performing repetitive tasks. This means they are able to produce high quality products with little variation and greater consistency than their human counterparts. Up to 20 million manufacturing jobs around the world could be replaced by robots by 2030, according to Oxford Economics. However, jobs which require more compassion, creativity or social intelligence are more likely to continue to be carried out by humans “for decades to come.” Our education system should be reflecting this. 

It should be understood that collectively, a well educated population brings economic wealth, social prosperity, and political stability to a nation. More importantly, the role of education is inevitable in producing a new generation capable of solving the real problems in our society. 

What can be done?

The current education system does not necessarily have to be dismantled, just re-configured. We need to rethink the curriculum and decide what is necessary to be taught. At what point do mathematical equations become useless to a student that chooses to enter psychology studies?   We should also start to rethink our methods, as methods of teaching play a large role in shaping the education system. Memorisation has not worked. Memorisation stops the student from thinking critically about the topic, and that is not actual learning.

Are exams and grades really the best incentives? We need to replace the current system of judging our intelligence by a traditional grading system and start looking for ways to nurture creativity, activism, originality and critical thought. The current grading system sees failure as an end and something to avoid at all costs, yet we learn from our failures. The great physicist Richard Feynman saw failure as a beginning and an important part of the learning process. 

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Richard Feynman Lecture

Not everybody learns at the same rhythm or has the same aptitude for every skill set. The system should therefore be adjusted to accomodate this. New technologies and initiatives such as Coursera, the Khan Academy, Udemy, Code Academy or Pluralsight are all attempting to provide alternatives. They simplify access to educational resources, improve many aspects of the learning experience, and allow students to learn at their own pace. As a caveat, new technologies are also responsible for making students lazy and not think for themselves. Easy access to technology has made it easier for students to cheat and can negatively impact learning when applied to the old system. 

Although the system has evolved, there are still many aspects of it that remain and many criticisms. Philosopher, mathematician, and Nobel laureate Bertrand Russell was educated at Cambridge and led a rather academic life. However, he believed that schools emphasised obedience and duty at the expense of free-thinking and spiritually enriched students. Russell was a defender of teachers who were truly sensitive to their students, and of an education system that asserted education as a gateway to knowledge, not to a particular income or status. Albert Einstein was quoted as saying, “The only thing that interferes with my learning is my education.” Indian yogi and author Sadhguru states that today’s education system is telling you to serve others when education and the search for knowledge should be there to serve an individual’s life. 

So, are you educated? If you are, you may want to reflect on how much of your knowledge base is serving you well in life and to not forget that knowledge is something you acquire throughout your life, not just once you leave school.

The Hutch Report


By | Education, Psychology

We seem to have an ever increasing amount of experts online which begs the question, “What classifies a person as an expert?” The Oxford Dictionary defines expert as “A person who is very knowledgeable about or skilful in a particular area.” However, the big challenge with this definition is quantifying “very knowledgable”. According to Psychology Today, “it turns out surprisingly difficult to provide a formal definition that everybody can agree with.  There are in fact many definitions, but most are unsatisfactory.” The lack of a reliable measure of expertise has enabled a large number of people to consider themselves experts in their chosen field. We call them “self-proclaimed” experts. 

In today’s digital economy there are literally hundreds of thousands of pieces of user-generated content published every minute. It is inexpensive and quick to create a video, write an article or produce a podcast. With the evolution of social media that number continues to grow exponentially. It is believed that 90% of the worlds data has been created in just the past 2 years.

With so much content and less time to filter through it all, people are overwhelmingly seeking out “experts” and high impact content to help them make purchase decisions, investment decisions, career choices, travel choices or even relationship decisions. The label of “expert” is powerful and weilds influence. In an  article in Forbes Magazine a study performed by Nielsen showed that expert content was 88% more effective in creating brand lift than a brands’ own content. It was also learned that expert content was the most influential at every point in the new buyer’s journey. However, more often than not, people are ignoring the fact that not everyone that writes articles, makes videos or produces podcasts is an expert.

The average content consumer has the challenge of determining what is real from fake, correct from false or simply what content can be trusted. They need to determine for themselves who is an expert versus who is just an online user creating content. But does that get determined at the site level or is there some sort of advanced criteria that you can run someone against to determine whether or not they are really credible in a particular area and moreover if they are an expert?

Financial television personalities such as Mad Money’s Jim Cramer provide investment advice on a daily basis. The efforts previously made to actually quantify the performance of his picks, here, and here, found that the results have been less than flattering. It is for this reason that most of these financial programs will flash a disclaimer at the end, which essentially removes them from liabilites that may arise from investors losing money following his expert recommendations.

“All opinions expressed by Jim Cramer on this website and on the show are solely Cramer’s opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL or their parent company or affiliates, and may have been previously disseminated by Cramer on television, radio, internet or another medium. You should not treat any opinion expressed by Cramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Cramer’s opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Cramer, CNBC, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Cramer’s statements and opinions are subject to change without notice. No part of Cramer’s compensation from CNBC is related to the specific opinions he expresses.”

One explanation of our will to follow these experts is the Authority bias. Authority bias is the tendency to attribute greater accuracy to the opinion of an authority figure (unrelated to its content) and be more influenced by that opinion. This concept is considered one of the so-called social cognitive biases or collective cognitive biases. 

Our digitally driven world has led us to become less patient and lazy. Therefore the deference to authority can occur in an unconscious fashion as a kind of decision-making short cut. This is not to say don’t follow experts, just don’t be teased by the term expert. There are obvious domains where experts are not just the product of a society exercise in labeling (just try conducting a brain operation, teaching a class in Physics or compete in the Olympics). 

While there is no 100% foolproof way to tell between an expert and their “self-proclaimed” counterparts, there are some simple things readers can do if they are seeking to assure that their expert content really comes from an expert. Consider the source, check the facts,  and research the author.

The Hutch Report

Learning from Google’s Mistakes

By | Education, Psychology

Everybody uses Google’s search engine daily, however, in addition to using their tools people should be learning from what Google does as a company, especially when it comes to failure.

When kids are learning to speak, walk, or do most of the actions we take for granted as adults, they are never impeded by the fact that they have previously failed their attempts. They just keep modifying their actions until they succeed.  So why and when does this change?  At what age do we suddenly have the realization that if we don’t do things perfect, we are less of a person?

You never hear a parent say to a baby as it is learning to walk, “You fell again, what’s the problem with you?” Unfortunately, at some moment this behaviour changes. You can see it on thousands of baseball little league fields, hockey rinks, basketball courts, singing contest, dancing contests, etc. A boy drops the ball and suddenly hears it from his coach, his teammates or some stranger in the stand yelling, “Bench that kid!” This instills the thought that we are not allowed to make a mistake.  That is a lot of pressure to put on anyone.

We don’t consider this kind of behaviour as the norm because we know that there is a large amount of support from parents and educators. There are a number of companies and researchers looking to improve and discover new approaches to learning and teaching. However, the desire to win at all cost does often override the desire to accept one’s mistakes, embrace them and learn from them.

The problem is not failure in itself; it is how people perceive failure. It is how we are conditioned to deal with failure.  Just the sound of the word seems to evoke the connotation of something less than whole, something weak or bad. Of course it doesn’t feel great to be performing in front of someone and make a mistake.  Somehow it makes us feel inferior or less than perfect. But therein lies the negative perception. Quite often that fear of failure works negatively on our nervous system, which in turn decreases our chances of performing at a peak level.

If one can change their perception of failure or their definition of what it means to fail then there is probably a greater chance that they improve more rapidly and their chance of success in whatever endeavour they choose. In addition, they enjoy the process.

The classic example of someone’s positive perception of failure is that of Thomas Edison. When asked how he dealt with so many failures in trying to find the right filament for the light bulb, he said, “I have not failed. I’ve just found 10,000 ways that won’t work.”

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UNITED STATES – CIRCA 1911: Inventor and physicist Thomas Alva Edison (1847 – 1931) looking at a lightbulb (Photo by Nathan Lazarnick/George Eastman House/Getty Images)

Interestingly enough, the people who can embrace failure and take risks invent things; dare to do what others don’t because they are focused on the road to success in front of them. They don’t concern themselves with the failures they have left behind because in their minds it is just a part of the learning process. These failures don’t represent them.  Instead they are further clues on the road to getting to where they want.

Failure does not mean taking blind risks.  Failure is the result of taking a calculated risk.  It is that percentage of risk that results in a potential failure.  You analyze that result, make some changes and reduce your risk.  You do it again until your risk is eliminated and you succeed. The great Canadian Hockey player, Wayne Gretzky once said, “You miss 100% of the shots you never take”. If you take yourself out of the game, you will never have a chance at winning.

In business the word failure has become synonymous with Silicon Valley, mainly because of the startup and risk taking culture it has developed. However, this is looking at failure on a larger scale. It happens on a much smaller scale daily.  It could be screwing up a dinner, getting a crossword puzzle wrong.  Giving the wrong answer to a question at a dinner party (maybe even the same one where the dinner was screwed up). People are bothered by these failures because it seems to be a reminder that they are somehow not perfect.

Perfection is a figment of the imagination (see our post).  Believing that perfection exists means believing that once achieved you cease to grow or learn.  Our lives are a journey of constant discovery and improvement. To set yourself the illusive goal of perfection, you set yourself up for a string of never ending disappointments.

There have been many strong statements regarding failure made by well-known personalities over the years. They should be used as a great source of motivation towards changing our own perceptions on failure.

“The only real mistake is the one from which we learn nothing.” – Henry Ford

“Success is stumbling from failure to failure with no loss of enthusiasm.” – Winston Churchill

“Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit.” – Napoleon Hill

“You build on failure. You use it as a stepping-stone. Close the door on the past. You don’t try to forget the mistakes, but you don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.” – Johnny Cash

“Failure is so important. We speak about success all the time. It is the ability to resist failure or use failure that often leads to greater success. I’ve met people who don’t want to try for fear of failing.” – J. K.  Rowling

“It’s fine to celebrate success but it is more important to heed the lessons of failure.”-Bill Gates

“Mistakes are the portals of discovery.”-James Joyce

The Hutch ReportSo what does all this have to do with Google? Google has to be considered an incredible success on so many levels however they have not achieved it by accident.  Google is one of the few companies that actually see making mistakes as a portal to learning and discovery. They have gone so far as to create a process, which they call a “Postmortem.” A postmortem is the process their team undertakes to reflect on what they learned from their most significant undesirable events. Incidents may happen, but not all require a postmortem. Therefore, the first important step is to 1. Identify the most important problems.

Once they have identified the problem their next step is 2. Work together to create a written record for what happened, why, its impact, how the issue was mitigated or resolved, and what to do to prevent the incident from recurring. They ask themselves questions such as; what went well, what didn’t go well, where did we get lucky, and what can we do differently next time?

Lastly, Google has understood that being blamed for an incident will only promote self-pity and become very unproductive. So they made a conscious decision to apply step 3. Promote growth, not blame. By removing blame from a postmortem, team members feel a greater psychological sense of safety. This enables them to escalate issues without fear. By assuring team members that they will not be punished for the mistakes they made, a greater trust is built. These three steps reposition failure as an opportunity for growth and development rather than as a setback.

These are steps that anybody can apply to their own daily lives. Learn from Google’s mistakes and look at every failure as a chance to discover something new, learn something, or improve something and you will in turn make yourself much happier.

The Hutch Report

Excess Credentialism

By | Education

We have all heard of price inflation, wage inflation or asset inflation, however over the past few years another kind of inflation has been creeping into the economy.  It is called degree inflation.

Many occupations that used to require a high school diploma are increasingly requiring a bachelor’s degree. This rise in educational requirements has now extended beyond just associate and bachelor’s degrees. Some employers that used to hire candidates with bachelor’s degrees, are now primarily hiring people who hold a Master’s degree.

You would think that a job which requires a degree such as an MBA would require the advanced skills that accompany it. You would also think that employers would be offering to pay more in order to attract better skilled qualified candidates. Therefore the logic follows that if you get a higher education you will be paid more and be better off.

 The problem is that although employers clearly see value in a college degree, the skills people learn in college are often not put to use on the job. According to a report by the New York Fed, roughly one in three college graduates (34%) are underemployed, meaning they work in jobs that do not require a college degree. This figure seems to have remained quite stable over the past quarter-century, with no real cyclical  from the trend. Among recent college graduates, the underemployment rate is even higher. Around 44% of college graduates ages 22 to 27 work in jobs that do not require a college degree. This figure appears to rise slightly post-recession and fall during economic booms, but over the long term it generally stays between 40% and 50%. So it may seem that the college-educated workforce that do not use their skills in the workplace has been the case for a long time.

There are, however, other signs in the economy that present a different story. The figures stated by the Fed seem to indicate a stable situtation yet according to recent figures also from the Fed, a different picture emerges. We can see this by looking at a general picture of the student loan debt landscape (Data via, WSJ, here, here and here and here). The most recent reports indicate there is:

  • $1.45 trillion in total U.S. student loan debt
  • 44.2 million Americans with student loan debt
  • Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
  • Average monthly student loan payment (for borrower aged 20 to 30 years): $351
  • Median monthly student loan payment (for borrower aged 20 to 30 years): $203

About 40 percent of the $1.45 trillion student loan debt was used to finance graduate and professional degrees. Combined undergraduate and graduate average debt loads by degree are the following:

  • MBA = $42,000 (11% of graduate degrees)
  • Master of Education = $50,879 (16%)
  • Master of Science = $50,400 (18%)
  • Master of Arts = $58,539 (8%)
  • Law = $140,616 (4%)
  • Medicine and health sciences = $161,772 (5%)

These student loan debt statistics seem to show that the cost of attending college is becoming a growing burden for a huge portion of Americans. In addition, these numbers were taken from a study in 2012 according to the website Student Loan Hero. However, according to more recent data from the MIT Sloan School of Management, The average MBA debt last year (2016) hit a record $107,172 at Sloan, up 25% in four years from $86,688. Either graduates are not finding jobs or they are being forced to take jobs that pay salaries far below what they would expect to make in accordance with their degrees.

This situation is not being ignored by all observers. Four years ago, billionaire entrepreneur Peter Thiel announced the Thiel Fellowship. It is a two-year start-up accelerator for young science and technology prodigies. The program awards 20 kids under the age of 20 $100,000 each to pursue world-changing innovations and businesses. However, there is one catch. They have to drop out of school to get it.

Theil is not the only one to advocate dropping out of college. Blogger and entrepreneur James Altucher has also written many time about alternatives to college and all the reasons why you are better off not going.

Getting a higher degree used to be a challenge and also a filter in a way. Only those in society with the greatest dedication to study would surmount the entrance exams required to get into many schools and in addition, take on the heavy workload in order to finally achieve their degrees. The degree had a meaning and a special badge of honor which was highly praised and rewarded in the workplace.

Historically, most colleges and universities in the US have been non-profit. Although there have been for-profit institutions for many years most of them were not accreditated. Once this began to change, for-profit institutions began to grow rapidly. As the emphasis on profit took importance over education, the entry bar was lowered. Why would your institution want to turn away a paying customer? What seemed like the best strategy was to make it as simple as possible for a paying customer to enter and study. Having taught at a for-profit University I can tell you first hand that it was blatantly obvious where their focus and attention was.

The result of the proliferation of these for-profit institutions has been a flooding of the market with degrees from schools with absolutely no reputation for excellence in higher learning. Meanwhile, online learning and the growth of accredited university certificates through massive open online courses (MOOCs) on website like Coursera are now offering an alternative to traditional university enrolment.

So, what seems to have happened is we find ourselves in a vicious cycle. More and more employers are asking for more credentials. Therefore, in order to find a position more people are being forced back to school in order to satisfy the needs of the employers. With so many people obtaining degree qualifications there are increasing concerns that academic credentials are losing meaning and value.

The reduction of qualifications to status conferring pieces of paper is known as “Credentialism.” Credentialism is a concept that has been around since the 1970s, when it was coined by social scientist. It’s an ideology which puts formal educational credentials above other ways of understanding human potential and ability. With a greater degree toting underemployed population, students are therefore beginning to ask if their degrees are worth the tuition fees they are expected to pay back as long-term loans.

In the end, this cycle feeds on itself. The longer a graduate remains unemployed, the faster the value of his skill set is diminished in the market. What we are left with as a society is a large number of unemployed, underemployed highly skilled graduates with high debt load burdens that they are unable to pay off.

The answer to this problem may lie in our mindset. If our motivation for learning is the joy of discovery as opposed to monetary reward we may all find ourselves better off in the long run. Education has been widely documented by researchers as the single variable tied most directly to improved health and longevity. And when people are intensely engaged in doing and learning new things, their well-being and happiness can blossom.